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American Industry Looks Like It's Boosting Capacity

Don't look now, but there are growing signs that the U.S. manufacturing sector may finally be starting to raise its capacity at a more rapid pace.

Over the past eight quarters, capital investment has accounted for some 36% of the economy's growth, and capital-spending plans for 1994 remain strong. But whereas in the past most of this spending has gone for equipment, economist Michael Moran of Daiwa Securities America Inc. notes that outlays for structures have picked up in recent quarters (except for the weather-

constrained first quarter), suggesting that "the expansion of capacity has

begun to motivate business investment."

The Federal Reserve apparently agrees. According to its estimates, factory capacity growth so far this year is the fastest since 1985 (chart).

One catalyst seems to be high operating rates. Industrial-capacity use was 83.5% last month, a threshold for expansion in past business cycles. And that's with capacity utilization in the bellwether motor-vehicle industry down by 10 percentage points since February because of model changeovers.

Another straw in the wind seems to be a rising number of plant expansions and green-field investments. Economists at Dean Witter Reynolds Inc. recently counted more than 60 new plants and 70 plant expansions announced by U.S. companies this year. Moreover, they are now reviewing a more inclusive tally that indicates that the actual number of such projects runs well into the hundreds.

Many U.S. manufacturers that are starting to expand capacity seem to have more than the robust domestic economy in mind. With the dollar no longer overvalued as it was a decade ago, and with U.S. competitiveness honed by restructuring and strong investment, they appear to be setting their sights on a resurgent world economy.GENE KORETZ